Chinese electric vehicle (EV) maker Nio (NIO -0.69%) and U.S.-based EV charging infrastructure and software company ChargePoint Holdings (CHPT -5.33%) are two companies with growing revenue but troubled stock prices.

Nio and ChargePoint saw their valuations surge during their peak in late 2021 -- only to be cut down by over 70% from those highs today.

Even in a market environment of rising interest rates and heavy skepticism toward unprofitable companies, opening a starter position in Nio or ChargePoint could be worth considering. Here's why.

Deliveries are starting to take off

Howard Smith (Nio): Nio is in the sweet spot for the growing global EV markets. After years of focusing solely on its home country of China, the company started exporting to Germany, the Netherlands, Denmark, and Sweden in Europe last year. China and Europe continue to be the leading EV markets, each accounting for a quarter of global sales last year. Investing in Nio gives you direct and immediate exposure to those critical markets. 

Nio is a much larger company than ChargePoint. Revenue is expected to be about $7.5 billion from 2022 sales, while ChargePoint expects under $500 million in its current fiscal year. But growth is still accelerating for Nio. Like many EV makers, it faced some challenges last year, including inflated raw material prices, supply chain constraints, and effects in China from both outbreaks of COVID-19 and lockdowns to prevent virus spread. But the company ended the year with record monthly vehicle deliveries that should continue to accelerate. 

Line graph showing Nio's monthly EV deliveries rising through 2022.

Image source: Nio. Chart by author.

If that growth rate continues, the road to profitability for Nio won't be too long. Losses increased in 2022 as Nio's costs increased and production and sales stagnated. While Nio's net loss grew to over $575 million in the third quarter, it had already been approaching profitability in 2021. It had a net loss as low as $45 million in the first quarter of that year. But the company continued investing in growth at the same time that costs increased and sales growth slowed. 

Now those growth investments are starting to pay off as sales begin to surge. With the stock down, its price-to-sales ratio has already dropped below 3 for 2022 and should continue to decline as sales grow. Next year, investors may be able to finally start looking at a price-to-earnings (P/E) ratio for Nio as it reaches profitability. That makes now a good time to buy. 

ChargePoint keeps hitting its goals despite a tough business climate

Daniel Foelber (ChargePoint): Even after surging 44% in the last three weeks, ChargePoint stock remains down 74% from its all-time high. But the company has a lot going for it -- namely, that it continues to hit on its revenue goals.

For its most recent quarter, third-quarter fiscal 2023, ChargePoint's revenue came in up 93% year over year and 16% sequentially. And that was even as ChargePoint achieved the low end of its guidance range. The company's revenue growth has been phenomenal, and it says that its demand continues to outpace supply. 

However, one ongoing issue is rising operating expenses, which have hurt its gross margin and led to widening operating losses. The following chart showcases the good and the bad of ChargePoint's business model right now.

Charts showing ChargePoint's quarterly revenue rising, and operating income and gross profit margin falling, since mid-2021.

CHPT Revenue (Quarterly) data by YCharts

The silver lining is that ChargePoint remains confident that it will be cash flow positive by the fourth quarter of calendar year 2024 -- a goal it set out roughly a year ago. Note that Q4 of calendar year 2024 would translate to roughly Q3 or Q4 of ChargePoint's fiscal 2025.

With the company years away from positive cash flow and likely an even longer timeline until profitability, ChargePoint's valuation remains expensive. But as the stock price languishes and revenue keeps climbing, the risk/potential reward profile becomes more attractive.

Another key advantage for ChargePoint is that it is in pole position to remain the clear leader in a consolidating industry. On Jan. 18, Shell announced that it was buying EV charging company Volta for $169 million in cash. Volta had been worth over $2 billion for a short time in late 2021. And for context, ChargePoint is worth a little over $4 billion today.

As with most industry cycles, the companies that are able to take market share during a downturn tend to benefit over the long term. Given ChargePoint's track record for executing its revenue growth targets and its path toward positive cash flow, the company could even end up buying out competitors on the cheap down the road.

ChargePoint stands out as the best bet in the EV charging industry. But it's still a highly risky investment that should be approached with a multi-year time horizon, and with money that isn't needed anytime soon.

Two exciting investments that could pay off big time

ChargePoint and Nio have loads of potential. But as investors saw in 2022, Wall Street can show little patience toward growth stocks during a bear market.

A reasonable approach, even for the most risk-tolerant investors, could be to consider adding ChargePoint and Nio to a diversified basket of EV stocks instead of going all or nothing into one particular company. Implementing diversification while also managing position sizing are two crucial ways to ensure a single stock doesn't derail a portfolio and jeopardize financial wellbeing.